Reliance Retail's last week announcement on share capital reduction has led to a meltdown among many retail investors who bought its shares from unlisted market at a much higher price than the announced buyout of Rs 1,362 per share.
Many traders said on Twitter that should be a lesson for many retail investors to curb their greed. On Twitter, many small-time traders said they are staring at losses to the tune of 60%. "Some lessons for retail investors venturing into unlisted space. These are HNI gambling grounds. Better to be wary," said a Twitter user.
It was nearly at 4000 during January 2022. Some lessons for retail investors venturing into unlisted space. These are HNI gambling grounds. Better to be wary
— Kunal Roy (@RoyKunal1989) July 7, 2023
"By putting the price at 1362, (Reliance) Retail has been valued at USD 150 bn (makes it almost 75% of the current Market Cap) - still a 3x up move in 3 years! Public markets were, will and continue to be the most efficient," tweeted Saket Mehrotra, fund manager, Tusk Investments.
— Saket Mehrotra 🇮🇳 (@mehrotra_saket) July 10, 2023If you bought Reliance Retail shares in the unlisted market at 2500-3000, then the problem is not with Reliance, it is with YOU.
Allow me to explain this.
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1 - The Oil to Chemical…
— Jayaragul N (@jayaragul_N) July 10, 2023Reliance Retail's payout of Rs 1,362 per share is a fair reward for those who invested in the grey market.
(it is an unlisted company)
huge loss for those who invested above this price,buying a share in the grey market is risky. pic.twitter.com/s2o458hdmJ
— Goela School Of Finance (@goelasf) July 10, 2023At 3,400, Reliance Retail's valuation was roughly identical to that of its publicly traded parent, the enormous Reliance Industries.
Absurd Valuation!
This will occur if you own unlisted shares on the grey market.
There is no protection at all!
Buying Unlisted shares in Grey market is a BIG NO. Another case of Retail footing the bill(Greed). My Heartfelt condolences to Reliance Retail unlisted shareholders who lost 60-65% overnight. Stay away from unlisted market. The plug could be unplugged anytime ✌🏻 pic.twitter.com/yWpbzF3sqg
— Guru (@Guru241190) July 10, 2023
Have warned many times not to buy unlisted shares. Reliance retail is the latest example.
— D.Muthukrishnan (@dmuthuk) July 8, 2023
At $100 billion-plus valuation, Reliance Retail is bigger than FMCG giants like ITC, HUL.
While some Twitter users asked if they can take the legal route for the sudden turn of events, others said reduction of share capital is not uncommon for an unlisted company.
"Reduction of Capital is not uncommon for an unlisted company. Procedurally it’s subject to a special resolution passed by shareholders of the unlisted company + sanction by NCLT. Even some listed companies in past have undertaken reduction of capital," said a Twitter user.
The board of Reliance Retail, on July 4, 2023, approved the proposal in which shares held by such shareholders shall stand cancelled and extinguished as per the capital reduction plan.
''A consideration of Rs 1,362 per share, determined on the basis of valuation obtained from two reputed independent registered valuers, shall be paid towards the capital reduction,'' said an exchange filing by its parent firm Reliance Industries.
This capital reduction plan will make Reliance Retail a 100 per cent subsidiary of Reliance Retail Ventures Limited (RRVL) and through this, it will be able to more efficiently structure businesses.
RRVL, the promoter and the holding company of Reliance Retail, holds 99.91 per cent of the share capital of the company.
While 0.09 per cent, around 78.65 lakh equity shares, are held by the identified shareholders.
Reliance Retail has been valued at $92-96 billion by two global consultants, a source with direct knowledge of the matter told Reuters.
Reliance had appointed independent valuers EY, which valued the company at $96.14 billion, and BDO, which priced it at around $92 billion, the source said, declining to be named as the details are confidential.
Ernst & Young had valued Rs 884.03 per share, while BDO Valuation Advisory LLP has put the price of Rs 849.08 per share.
Reliance Retail is fully owned by Reliance Retail Ventures, which also houses other retail operations such as international partnerships and the billionaire's consumer goods business.
The valuations show consultants estimate Ambani's businesses are growing fast. In 2020, Reliance Retail Ventures raised Rs 47,265 crore by selling a 10.09% stake, valuing it at roughly $57 billion based on current exchange rates.
Investors at the time included KKR, the Saudi Public Investment Fund, General Atlantic and the UAE's Mubadala.
Reliance Retail has in recent years partnered with a slew of global brands to launch and expand their presence in India. From fashion to food, its partner brands include Burberry, Pret A Manger and Tiffany.
